S02E09 - Planet - Net zero by 2030? Moon shot or piece of moon cake? (Transcript)

Welcome to The Supply Chain Dialogues, season two, episode 9. I am Daniel Helmig.

AIMEE

And i am Aimee, the AI generated voice model.

DANIEL

Last week, I had the privilege of being invited to be part of the Procurement Asia Summit in Shanghai. About 300 top international firms, many with a strong Asian footprint spend three days comparing notes around sourcing. I gave a keynote speech and was a juror on their prestigious  China Procurement Success Award. 

The unsung heroes of the event were Queenie Wang, a  Senior  Event Producer, and the rest of the awesome team at the Procurement Success Summit to make everything smooth and professional.

So there I was, having judged the submissions in the categories “Carbon Reduction”, ”Sustainability for the Future” and “Category Strategy Award”. We had submissions from Schneider Electric, Walmart, Moet Hennessy Diageo, NIKE, Dubai Municipality, L’Oreal, DSM, UPM, Hilton Supply Management, and more.

It was interesting to see how different companies looked at sustainability and carbon reduction. Solutions ranged from excellent solutions like the remodelling of their complete transport systems (ie. air to truck), the removal of fossil energy in their Scope 1 and 2 to the less inspired solutions, where people felt that saving paper would already be good enough to get an award in this highly prestigious set-up.

Thinking about these and many other projects I have seen over the last years, I felt disheartened: How on earth are we going to curb the steady rise of Greenhouse Gas in our atmosphere, heating our planet to levels that will impact all of us, if even some of the great companies at this event put only their toe in the water of change. Even the best and most innovative solutions were not holistic enough to turn the tide of the companies.

So, I took it upon myself and delivered a wide-sweeping talk about nothing less than achieving net zero emissions by 2030. 

Now you might say, what is this guy smoking, so far he was fairly lucent in the former episodes, but now he is away with the fairies.

But stay with me: none of what I will talk about today is new or has not been done before, it just was not applied to this specific issue.

in my keynote, I went through the normal three-part step of any solution:

1. Do we have a problem?

2. Can we solve it?

3. Who takes the lead?

You will be able to find all the material I researched on our webpage helmigadvisory.com, stored under episode 9 of season 2.

I’ve used mainly the non-profit website ourworldindata.org, if you do not know it, register and check it out…it is free and brilliant.

So, here it is: Is net zero by 2030 a moon shot or moon cake? 

DANIEL 

Now,  what I'd like to discuss with you today are three things about the possibility that we can get net zero emissions in the industry: Not by 2050, not by 2040, but actually until 2030 at the latest.  And before we do this, we go through some of the facts to discuss, do we even have a problem. Because why should we go through all these efforts if there is no problem?

Every good presentation and podcast episode starts with a quote, In this case, it inspired me to take nothing for granted about the knowledge that does exist in your head, dear listener when it comes to Greenhouse Gas emissions and climate impact: 

AImee

The quote was a long time attributed to Confucius but seemed to come from Guan Zhong, who lived 720 to 645 BCE, 100 years before the philosopher and teacher. Guan Zhong is best known for his contributions to the state of Qi, in which he served as the chief minister during the ancient Chinese Spring and Autumn period:

DANIEL

He said:

“If your plan is for one year, plant rice. If your plan is for ten years, plant trees. If your plan is for 100 years - educate.”

So, please forgive me if I try to educate us together a little bit in terms of whether we have a problem or not.  And I do it in a way that follows my journey of understanding - I use science, but we work as well with a few simple metaphors.

So the greenhouse effect we all know is a good thing, right?  Because that's the only way that we have a greenhouse earth and not just a bare planet surface like so many other planets we know of. 

That's the reason why we have trees. That's why we live in this beautiful world.  But the problem seems to be that there can be too much of a good thing. 

AImee

The Earth and our atmosphere reflect solar radiation. The Earth’s surface absorbs some and warms it. Infrared radiation is also emitted from the earth’s surface. Some of the infrared radiation passes through the atmosphere. Greenhouse gases absorb some since their molecules are on the same wavelength. They re-emit in all directions into the atmosphere. This is to warm the earth's surface and the lower atmosphere.

DANIEL

So I would call it a stewpot.  It's basically the more heat you can get, it's like the oven, from the sun,  and the less of this heat can basically dissipate once again into, outer space, the more it heats us, heats up both the earth and as well the atmosphere.

Now, this whole balance was something which was created millions of years ago, and it worked okay because the greenhouse gas emissions that were coming from the Earth were absorbed as well in this kind of equilibrium that we had. More and more plants absorbed CO2, so it did not travel into the atmosphere. Vegetation died, fell to the ground and over millions of years, linked to geological changes, led to the large amount of coal, gas, and oil that we use to fuel our success over the last 50-100 years.

So, the situation for the atmosphere and us changed, when we starting digging up all those CO2 binding products from former vegetation, and fused them as fuel, releasing all these millions of years CO2 into the atmosphere, which were held in a nice equilibrium before.

So, more Greenhouse Gass in the atmosphere, more absorption of infrared radiation, heating up both the atmosphere and earth's surface - it is like a giant stew pod.

So, the concept is not too difficult to understand for anyone who spends more than 5 min reading up on this somewhere. There are many other effects (ie. that Greenhouse Gas lead to a cooling of the upper atmospheric regions in the stratosphere, and which Greenhouse Gas has what impact), but conceptually it does not change the situation one bit.

If you look at the increase in Greenhouse Gas emissions that end up in the atmosphere, you will not be astonished, by the huge growth we all had from the start of the first industrial revolution, when we heated up water to create power in steam engines, we used fossil fuel, adding to this very brittle equilibrium of our greenhouse earth.

Here are two facts. The first one led to me getting involved in the topic:

AIMEE

If you go back to the industrial revolution 1750 in England and measure Greenhouse Gas emissions, 50% happened since 1990.

The second fact is that since 1979, the greenhouse gas that kept hanging around in the atmosphere increased by 25%, from 340 parts per million to 420. In short, 25% in 25 years - one per cent per year on average. 

DANIEL

Let’s look at this as well in the longer term to get a feel of how quickly we are spinning:

I have linked the overviews from ourworldindata.org for cumulative CO2 emissions since 1750 - again, the beginning of us using fossil-powered machines to have benefits for mankind.

For a long time, Europe was earths biggest CO2 emitter. UK, Germany, France, Italy, the usual bunch. 

The inflexion point where the US took over as the biggest emitter in the world was interestingly in 1990. After that, the USA left everyone in the dust  - amazing for a country that just houses 4% of the human population. 

It was not before 2003 that China overtook the much lower emissions of Russia (by the way about 0.5% of human population) - getting serious in industrialization and hence Greenhouse Gas emissions. I still remember that at that point in time every time I came to China for business, it seemed that in the main industrial regions, change was not there, but it was gigantic- everything seemed possible.

DANIEL

Let me just pause here: It is like watching the fumes coming out of the exhaust pipe of a big machine in your living room. The machine produces electricity, warmth, and power to do all the wonderful things that you want : to eat, stay warm, and produce power for you to earn money. But the exhaust pipe as well ends in the living room, and the more you get heat and  use electricity, the more you suffocate.

So, all the Greenhouse Gas emissions lead to wealth and life improvements in all those countries, moving people away from poverty levels, clean water, schooling, warm or cold houses etc - it is all good. But what if the living room suffocates us - how do we find a way to open a window or get rid of the fumes, but not the energy?

Now this brings us to the analysis of primary energy consumption by source since 1800:

So it doesn't really matter whether it's China, US or whatever. It is where we basically get all of our energy from. And this is still a VERY scary story:  

85 per cent of all primary energy that we use to fuel our industries is still fossil-based, and it is accelerating. 

Now you probably say: Daniel, what is AIMEE doing? Every day, I read online and see on TV all the great renewable energy resource technologies we use to create greener solutions. It can not be 85% any longer.

Well, this is called in social science academia Availability Heuristics.

The availability of information to make a judgment call leads us here astray: 

Just think about the movie MEG 1 and 2, or the old 70s movie Yaws about getting hunted by sharks. The images were everywhere available, and many people were afraid to go into the ocean for fear of shark attack. Now it is statistically more likely that you get hurt on your car ride to the beach than to be seen as an appetizer for a shark, but that is an availability heuristic for you. Or just think of your fear of muggings, murder, etc. If you follow Hollywood and other major movie factories now in the world and the availability of images on this topic, our evolutionary-created monkey mind forms a probability that is based on the pictures that we see, not the data behind it. That’s why Bollywood movies are probably better for our nature because you normally will not get hurt when suddenly massive dancing is happening all around you.

Now, back to the topic: 

Yes, many countries make significant strides about renewal or nuclear energy, but it is a smidgeon and hardly makes a dent in curbing the accumulation of Greenhouse Gas in the atmosphere, closing the stew pod lid more and more. 

If you look at the amount of media attention that renewables are getting in the newspapers and in TV. It looks like we are already safe.  That could not happen.  But that's the point about the availability of data versus the actual data.  The more availability of this kind of stuff you have, the more you feel that everything is okay.

And, in many networks, people as well, intuitively or consciously knowing about availability heuristic, make it their task to show you data that give you the warm and fuzzy feeling that in the region that you live or industry you work, you do so much more than the rest.

So data is being sliced and diced to show Greenhouse Gas emissions per capita (guess what: all population-rich countries will look good) or just break out the renewable power creation development (guess what: it looks great since many countries put their back at  it - while still subsidising cerosin and fossil fuel extraction), or show how much their overall emissions are going down (guess what: this is all great after they polluted the atmosphere over hundreds of years - but while they with very small populations do better, regions with 16% of worlds population like Africa, India, and China are still just warming up their living room machine…)

So, if you like to not fall prey to availability heuristics, remember: you life on the same earth as everyone else, and impact is to be measured only in absolute emission numbers, no derivative will help us here.

So, still until now, we could say: so what? We have a few particles more of these gases in the atmosphere; who cares.

Now the stew pot creates two effects in the world today: 

AIMEE

First the increase or decrease of precipitation. We will add to the show notes a great overview of our world in data dot org, calculated by standard academic regression models. They looked at the change in precipitation from 1991 to 2020. Russian Federation, which is a significant stretch of land. Greenland, the eastern side of the US, mid-range in Africa, and most of Southeast Asia just have seen a significant increase in trend.

DANIEL

Conversely, the biggest trend in precipitation reduction in these thirty years is in South America, the Tip of Africa, Madagascar, south-west China and australia. In Europe, we see continental Europe (Spain, France, Italy, Germany being on a rain reduction trend.

Now, let’s get to the second effect of our stew pod: The fire, the heating up of regions of the world where radiation is strongly absorbed, or sun radiation is less reflected than before. It is a powerful picture, and I encourage you to check out the presentation in the show notes.

AIMEE

Again, the Russian Federation's land mass has had the biggest temperature change since 1991. The nearer you reach the North Pole, the more it heats up. This affects Greenland, Iceland, and Alaska as well.

Then you see the temperature increase seeping into Nordic countries,  the Baltic states, Ukraine, Bulgaria, Europe, Iran, Kazakhstan, Uzbekistan, Mongolia and the north of China. Then, half of Canada and the USA are heating up, and the regions that we mentioned before, already  having less precipitation, as well get even more heated up: I talk about South America, South Africa, and Australia.

DANIEL

In other words, formulating it a bit alarmist: It does not matter where our children live, they will suffer the consequences of our actions or actions in full force…since this is still, due to the exponential increase of use of fossil fuel,. While we try to keep ok in our stew pot, we also fan the fire below as if there is no tomorrow…

So, when you put these two effects together, you push two domino pieces along the line:  With more Greenhouse Gas emissions reflecting infrared wavelength energy into the atmosphere and back to earth, our oceans head up, absorbing even less co2, permafrost thaws, releasing further Co2 into the atmosphere of 200’000 year of vegetation that was still kept in this freezer, and now can rotate freely. And while we do not cover it here, the ice sheets have reduced significantly, reflecting less sun rays, and energy gets absorbed even more in the earth and sea.

So, I think it is fairly obvious that we have a problem created by us being very smart and industrious, creating machines, buildings, roads, and vehicles fueled by the stuff that is heating our stew pod. Just for the record, in this stew pod example, we are the stew…:)

But should we give up and throw the towel since we can not put the toothpaste back in the tube?

Well, this brings us to the second question we ask: Can we solve it?

To say it right up front: Yes, we can, and based on solutions that we have utilised so many times before. But, they are not that obvious when you look at the solutions today.

Before we dive in, let me make another observation: I

AIMEE

If you look at how Greenhouse Gas emissions are sliced in reporting, you can get very confused about where to start, so I will make it VERY simple.

We track Greenhouse gas emissions from agriculture, land use change and forestry. Then we track Greenhouse gas emissions from waste, buildings,  industry, manufacturing and construction,  transport, electricity and heat, fugitive emissions from energy production and other fuel combustion and, last but not least, bunker fuels. 

DANIEL

For the purpose of this exercise I make it much simpler: either it is Greenhouse Gas produced from agriculture and other land use, or it is industry. Whether it is transport, building, energy production, etc., everything is based on machines we build to execute. So, if we ensure that the companies and their subsuppliers find ways to create these products and machines in a net zero mode, we are there.

Forgive me for that simplicity, but it clarifies that 87% of all Greenhouse Gas emissions are created by us producing stuff that is not food—or land use.

Based on the simple 80/20 rule, I will not spend time further on the 13 % (although there is tons of opportunity to curb Greenhouse Gas emissions), but concentrate on the main focus of this podcast: Supply chains.

Do you know about the technique of thought suppression by psychologist Daniel Wegner? If I ask you not to think about a three-humped camel, what will you see in front of your inner eye? A three-humped camel trodding through the desert.

Now, since we created this camel inadvertently, let's put it to good use., because it can help us to visualise what needs to be done to get to net zero across all industries.

Since we established that the 80/20 industry creates most of the Greenhouse Gas emissions, let’s focus on the companies that emit these Greenhouse Gases as part  of their normal operations. 

Let’s use 80/20 again. We covered in this podcast several times that if you look at a company, its supply chain is responsible for 70-90% of the Greenhouse Gas emissions. So, no company, no Greenhouse Gas emissions. For a company that declares the need for net zero to their supply base, 70-90% of the Greenhouse Gas emissions of that company would be gone. With a bit of work on their scope 1 & 2 (their own electricity, heating, cooling, their facilities, and own vehicles) - voila - net zero on all scopes.

Is it not astonishing that governments and all these wonderful Greenhouse Gas measuring standards focus so much on Scope 1 and 2, rather then Scope 3, although it covers 80 of the 80/20 part?

I tell you why: because they looked at the problem with the tools of their toolbox: subsidies, restrictions, taxes, etc - the usual ammunition governments can use. And who are the targets/subjects of these measures: firms, not markets, not supply chains? So, governments across the world apply their tools to individual firms and - as all governments do, make it as difficult as they can with restrictions, and laws,- employing lawyers and god knows why accounting firms to measure, control, and certify firms.

But, they ignored the biggest tool in their toolbox: The use and increase of DRUM ROLL : competition.

A force that the creators of 80% of all Greenhouse gas emissions are subjected to, come rain, come shine. 

Competition leads to innovation and creativity; competition leads to cooperation and collaboration, and competition leads to increased efforts and higher levels of achievement.

The one force that makes small to multi-international conglomerates and whole supply chains become nimble and change on a dime if their revenues and shareholders risk losing out.

So the only thing we need from Governments is a standardisation of the measurement requirements for Greenhouse Gas emissions (today, we have over 200 in the top 40 biggest emitters), and a timeline that is less than 2050. Why: The average tenure of CEOs in the top 2’800 companies has a median stay rate of 5 years. We covered this in our last episode. It is based on a study run by PWC in 2018. Each of them will look out for how they make their shareholders and customers happy in the five years they are there and postpone any long-term investment that is not regulatory required to the next job holder down the line. Visions and strategies, to be successful, need to be set to timelines inside the tenure of CEO’s and boards. A remaining timeline until 2050 of 27 years is not conducive to getting us to net zero. It will result in a passing down of the short stick to the last CEO at the end of the time, then looking around and giving up in front of this incredible task.

So, similar to how we tackled so many other things in supply chains when the likelihood of our companies was at risk due to low cost, high quality, etc competition, we needed one to three 1’000 days plans to get to net zero of all companies along all supply chains globally.

What does it take?

Before we get started, companies need to be straight with their suppliers.: Dear all, we, as your customer, will require you to be net zero by date x. We expect plans by next year, execution in the following year, and accomplishment in year three. If this is physically not possible, we will go with the companies that are furthest on their way.

So, when this is out there in the open, like in all other competitive market scenarios where you have to change operating patterns, you use three tools, each with its own complexity and lead time:

1. Drive quick wins in commercial negotiations. Many spend categories already exist today or could be at net zero. Look at your news feeds to see all these companies already at net zero today. 

2. This is then the internal change in specification towards low to now net zero emissions. Whether it is via the use of materials that can be produced with lower energy consumption, higher recyclability combined with higher circularity, etc, we will talk more about this in a bit.

3. Last are the stubborn situations, where the fixed conditions of the production location define the fossil fuel use. But here is the thing: over time, the fix becomes variable. So, while you can not change a steel producer who smelters and produces in a country with high fossil fuel energy consumption, who says that in three years that company can not deliver you from somewhere else, where the energy mix is much more favorable.

I have moved billions of dollars to suppliers and markets over time, to areas and countries which were never on the radar of my industries before. Not because we wanted it but we needed to do it due to competitive pressure in our market. Good planning, time, and relentless execution can get you there.

But here is the rub: All three efforts need to be kicked off simultaneously to be effective and get you to net zero in three-plus years. How long you define each of the humps of our three-humped camel is up to you, but experts like me can tell you that even the most complex sourcing patterns can be moved over time - and I am thinking 3-5 years, not 10-20. Think of our stewpot, our children and grandchildren need us to reverse what we have done since 1990 - now.

So, let’s look at the levers we have for emission reduction:

Circularity and recycling fall in the “quick let’s do it” category. 

AIMEE

By using less virgin material, energy requirements will be reduced, as well as the downstream effect of lesser waste. So aluminium, steel, plastics producers need to increase the utilisation of recycled input materials significantly. 

DANIEL

There is a high likelihood that your R&D department will tell you about the negative effects of using less virgin material. While increasing recycled material slowly in the next 2-3 years, make them develop innovative solutions to use 80 to 100% recycled products, before someone else will.

 - and they will).

Next is the effective use of materials and processes: so less material usage and energy consumption. Adaptation of waste management and demand-oriented provisioning - nothing new, but better. On this topic: finally, fix your Sales and operation Planning Process - it is a mess, and you know it. With that, you will easily reduce waste and obsolescence as well as unnecessary energy use by 10-15%.

The third route in the keep it easy setup is renewable power: Conversion to 100% renewable energies. Now, here is the role of governments again. If you need to subsidise, subsidise the creation of renewable energy plants for industries rather than subsidising fossil fuels. You might even consider cutting back on subsidies on life stock farming when you’re at it…and use the money where it helps your citizens.

Renewable heat in building infrastructures with district heating or industrial waste is a bit more long-term, 2-3 years, but can be done along the whole supply chain.

Using nature-based solutions and new material specifications for your products and your sub-products will help. 

Here, it is time to start getting out of your comfort zone in hiring the same mechanical, chemical and electricity engineering folks. It is time to get some new, different voices from biology, geothermal & environmental science areas to bring the influx of new ideas you need. Break the idea circularity in your firm.

The next opportunities are carbon capture and total fuel switch to hydrogen or electricity for transport. There are even tankers already roaming the seven seas that are operating with high-tech sails…the sky is not the limit for humans in companies if competition is set at high.

So, do we have a solution? I am absolutely sure we do if governments stop treating the industries as naughty children, and ask companies to behave like adults by setting swim lanes - utilising competition as the differentiating factor to get to net zero.

Humankind increased its live expectancy by 100% over the last 120 years, expanded from 1.2 to 8 billion people, which are fed by 3% of the population, vs. 80% in the 19 hundreds. We can produce vaccines in years instead of decades, change sourcing patterns globally as needed, halved baseline poverty in the last thrifty years - and watch movies on televisions in our back pockets - we got this - if we use the force that has given us all of this: competition and a simple regulatory framework.

Now, lets get to our last question:

Who takes the lead?

Well, the simple answer is: those that polluted the atmosphere since 1750 as if there would be no tomorrow. The 4 % of the earth's population in the USA, combined with the 10% that live in Europe. They were at it the longest and had commercial over decades, the biggest benefits.

Or should it be the regions that have the highest population and, therefore will suffer the most per head when we do not figure this one out.?

Or should it be the nations/companies that currently right now emit the most? 

Let’s use another factual approach and remember that in the end, we are all in the same stew pot, and it is getting hotter and steamier everywhere very soon:

AIMEE

DANIEL

But today, when faced with this issue of Greenhouse Gas emissions and the earth's heating, we can find different solutions that the one nature has in store for us: If half of the human population dies due to massive climate pattern shifts, as well greenhouse gas emissions drop significantly…but that’s 4-5 billion lovely people - dead over 2-3 generations - nothing we want to consider as the lazy alternative.

So, who could lead the effort? If we look at it from the top manufacturing locations in the world and where their change could have the largest impact, we come to China by far: 

AIMEE

28% of all global manufacturing is done in China, followed by the USA at 17, japan at 8, Germany at 6, and the rest.

In other words, all 185 countries not under the top 10 manufacturing nations produce as much as China alone.

DANIEL

While Westerners look at China with a weary eye due to their different political systems, when it comes to getting things done on the commercial business side, China is the primus inter pares today.

So, if the Chinese government would say:

1. We require all our companies in our country to have a  net zero-emission supply chain (scope 3) by 2030.

2. We require all our companies in our country to accept only customers that have a net zero emission target by 2030, 

The world would change on a dime…based on the competition this creates in all industries.

Alternatively, we can wait for the United Nations and all democratic and lobby-supported governments to find solutions, but looking at the steep incline of Greenhouse Gas emissions ending up in our atmosphere and turning on more heat for our stew pot - I do not think this will work unless they change drastically their operating patterns. Just look at the last results from the respective COP’s 

AIMEE

In case you did not know, COP stands for Conference of Parties and is used in the context of international climate change negotiations. It refers to the annual meeting where representatives from various countries gather to discuss and address global climate change issues. The COP meetings are organised under the United Nations Framework Convention on Climate Change (UNFCCC), an international treaty to stabilise greenhouse gas concentrations in the atmosphere. The objective of these COP meetings is to facilitate global cooperation and agreement on measures to mitigate climate change and adapt to its impacts. The most well-known COP meeting is the COP21, held in Paris in 2015, which resulted in the landmark Paris Agreement. This agreement aims to limit global warming to below 2 degrees Celsius above pre-industrial levels and pursue efforts to limit the temperature increase to 1.5 degrees Celsius - which we already know humanity will pass with flying colours.

DANIEL

Do not get me wrong, this all is beneficial, but if we had put  the quality, technology or any other revolution into the hands of governments and UN, we probably would still be having a toolbox in out cars' trunks to fix it, and would still argue, how many mainframe computers are needed globally.

Let’s face it: governments need to set simple swimlanes, in which the private sector competes, here with a glide path to net zero.

So let me summarise what we have talked about:

Yes, we have a problem, and it hits all of us - especially our children and grandchildren.

Yes, we have a solution by applying competitive pressure towards the sector that is responsible for 87% of Greenhouse Gas emission creation: industries.

Lastly, we take China and any other country in the top 10 manufacturing  spots if they can get their act together and say:

1. Standardise Scope 3 criteria for all companies in your region and require them to have their supply chain, which is 80% of their over Greenhouse Gas emission net zero by the latest 2030

2. Companies declare a 3-7 year glide path to net zero for all their suppliers and customers (down- and up-stream)

3. Relentless measurement, control and execution until we are in the clear again, and the GHG ppm levels trend in the atmosphere is  retracting

Whether we like it or not: We messed up our planet in more or less 30 years since 1990, let’s use the same people plus their children to clean it up again, since we, as the saying goes, just borrowed this earth from the next generation. So let’s return the earth as we got it to the next owners and give our children and grandchildren the life they deserve…

I hope you enjoyed this episode of “The Supply Chain Dialogues”. If you did, please subscribe if not already done before. Share it with a colleague, friend, or any decision-makers you know in your company. 

With that,

Stay safe, be bold and see you next week. These are “The Supply Chain Dialogues”, produced and copyrighted by helmig advisory AG in 2023.

NOTE: From now on the cadence for the podcast is fortnightly, due to the increase in research needed to produce a quality content episode.